This month's article is a follow up to last months article ["How Pizza Hut Ruined Pizza", RJ, Jul. 2010, Pg. 13-Ed.]. If you have not read it I strongly suggest you do so. We talked about how Pizza Hut lowered pricing. It was a great marketing scheme "Any size pizza, any toppings for $10." People flocked to the store and sales were up. That was the good news. The bad news is that soon all the other pizza places in town lowered their pricing also. Now the public knows the "real" cost of making a pizza and the new public expectation, set by Pizza Hut, is to pay $10 for any pizza, any toppings. It's going to be difficult, if not impossible, to go back to old (profitable) pricing.
The economy really has been down for the past year or two. The reaction of most contractors has been the same. As an industry, we have lowered our pricing. What are we now telling the customer, without saying it? Right again, "We have been ripping you off at the higher prices we used to charge." And guess what? When one contractor lowered his price so did the guy down the street. What has this done to the expectations of much of the public? Right, the "expected" cost of replacing equipment just went down. Does this sound familiar?
As a footnote, before we go on, I went to Pizza Hut last night. Granted it was a Thursday evening, but guess what? There were less than a dozen customers in the whole place. It was back to business as usual, with every pizza place in town vying for the same customers. But now the price of pizza has been lowered to $10 and many pizza parlors are now losing money. Get the point!
OK, so much for introduction. Now let's change our thinking a bit and focus on two brands of watches that have been successful for a long time-Rolex and Timex. If I asked you "What's the main difference in a Rolex watch verses a Timex watch" most would instantly say PRICE! You're right. A good Timex watch will normally cost less than $25. A good Rolex can easily run into the thousands. Guess what? Both watches will tell you what time it is. Yes, I do understand that the Rolex watch probably won't lose a second over a year while the Timex may need to be reset every couple of months but hey, they both do a pretty good job of telling you what time it is. So what's the difference in the two watches? Let's look into a few areas of difference and see if you can draw some conclusions about your market and how to approach the customer.
Features vs. Benefits
A feature is what the product does for you. The benefit is the real, or perceived, value the feature provides. The Timex watch sells features-it keeps pretty good time. A Rolex has that same feature, but Rolex sells benefits. How does owning a Rolex make you feel? What does owning a Rolex tell your friends and business acquaintances? What about long term value? Which watch is an appreciating asset and which one is a depreciating asset? Which watch was an investment verses a purchase? Think about each of these questions when it comes to what you offer in your marketplace versus what others offer.
What Is the Profit Margin?
I don't really know the answer to this question, but I suspect there is a much greater profit margin in selling a Rolex that keeps time for thousands of dollars versus selling a Timex that keeps time for $25. What do you think? How many Timex watches do you suppose you would need to sell to make the same total net profit earned by selling one Rolex? Now that isn't to say Timex has a bad business plan. Their plan is simple and it works for them. Make $1 per watch and sell a zillion of them.
Now look at your company. How many lower priced pieces of equipment do you have to sell to make the same profit you would have earned by selling a properly priced high-end piece of equipment? How many sales presentations did you have to make in each case? How much total time and energy did it take to sell five lower-priced units in order to make the same profit you would have made by selling one, properly priced, high-end unit?
Where Do You Buy Each Watch?
Timex watches are sold everywhere. You can get them at Wal-Mart, K-Mart even the Dollar Store. Where to buy a Rolex? Besides that friendly looking chap on the Boardwalk in Atlantic City, you will only find them at high-end jewelry stores and in some cases, stand-alone Rolex stores. The customer knows the value (or at least the perceived value) before they walk into the Rolex store. Their customers pre-screen themselves before they make contact with the Rolex outlet. Guess what? Your customers are doing the same thing. That alone is food for thought. What is the customer's perspective of your company and what you sell? Now let me mention one last thing. I doubt Rolex customers do any haggling with the jewelry store clerk over price. The value is what it is and price is what it is. If the customer wants to pay less they have an option, they can go to Dollar Tree or Wal-Mart and buy a Timex.
Get the point?
Who Is Their Customer?
Timex sells to everyone. Rolex doesn't. Instead Rolex targets the client that has both the ability and the desire to purchase their product. Who do you market to? Price really does become an issue if you're trying to market a Rolex to the wrong clientele. What about your company? If you're marketing to a clientele that has neither the desire nor the money to purchase what you offer, the deciding factor will be price. If price is the determining factor you will never be profitable in any market, good or bad.
The Wow Factor
When John or Mary purchase a Timex watch at the Family Dollar Store, who do they tell? Chances are very good they never mention their purchase to anyone. However, when someone just spent a large sum on a Rolex watch I really believe they'll find some way to tell someone about it. Why? They are proud of their purchase. They want the world to know they have purchased this great watch. When asked why they purchased it, they will come up with lots of reasons (valid or not) of why they invested that much money in a watch. In essence, the Rolex purchaser just became a Rolex customer service rep. That's pretty cool. What do your customers tell their friends about the new equipment you just installed?
Timex and Rolex both have their places. The question is "Which one do you want to be in your market place?" My hope is that your desire is to become a Rolex-type company in your marketplace. Your company and products will not only stand out amongst all of your competition but there are a few wonderful side benefits. You now have happy customers that have become unpaid advertisers for your company and you are making a reasonable profit. Those are some really nice benefits.
Some reading this article have a dozen ideas spinning in their heads on how to become a Rolex-type company. Next month I am going to share my thoughts on how that might happen with an article entitled article "How to Become a Rolex Company in Your Marketplace."
"This article was originally posted on ww.reevesjournal.com."